CANADA FX DEBT-C$ slips as swine flu, bank worries weigh

TORONTO, April 28 (Reuters) - Canada’s currency fell on Tuesday morning, pressured by worries about swine flu, weakness in oil prices and concerns about the stability of the U.S. banking sector.

World stocks and the price of oil fell on Tuesday as a report that major U.S. banks may need more capital added to concerns in the market about a possible flu pandemic. The World Health Organization raised its alert level on swine flu to phase 4. [MKTS/GLOB].

“It still is the pandemic fears that are coming out of Mexico and the uncertainty around that,” said Eric Lascelles, chief economics and rates strategist TD Securities.

“The Canadian dollar gets the short end of the stick, both for commodity and safe-haven reasons and that is ultimately why it’s lost a little bit of ground,” he added.

At 9:03 a.m. (1303 GMT), the Canadian currency was at C$1.2205 to the U.S. dollar, or 81.93 U.S. cents, down from Monday’s finish at C$1.2195 to the U.S. dollar, or 82.00 U.S. cents.

With no major economic data out on Tuesday, the markets will likely be influenced by moves in the equity and commodity markets. Bank of Canada Governor Mark Carney also testifies later in the day to the House of Commons Finance Committee.

BONDS FLAT

Canadian bond prices were largely flat across the curve, while the bigger U.S. Treasury market firmed as swine flu and bank concerns fueled a safety bid. [ID:nLS143298]

“For the most part, they have been able to eke out modest rallies on the fear factor so that seems to be the dominant theme,” said Lascelles.

“The move is a fairly a modest one,” he added. “Frankly, the Canadian curve had steepened so significantly in the last couple of weeks that any flattening to me seems entirely justified.”

The two-year Canada bond was down 2 Canadian cents at C$100.59 to yield 0.964 percent, while the 10-year bond was up 2 Canadian cents at C$106.42 to yield 3.008 percent.

The 30-year bond was down 10 Canadian cents at C$121.35 to yield 3.762 percent. In the United States, the 30-year Treasury yielded 3.81 percent. (Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson)